Apple to Target Emerging Markets with Low-Cost Phone to Launch in September at $199?

Piper Jaffray analyst Gene Munster late yesterday issued a new research note using average low-end smartphone pricing in emerging markets to argue that Apple's rumored lower-cost iPhone will launch in September with a price tag of around $199 unlocked.

Munster examined smartphone pricing on 15 different models across six international markets (Germany, UK, France, China, Brazil and India) to find that lower-end smartphones average slightly over $200 unsubsidized. In China and India, the average prices are $138 and $140 respectively, while Apple's cheapest existing phone, the iPhone 4, averages over $500.

Quote:

We believe the last finding demonstrates that the biggest pricing gap for iPhone exists between the cheapest iPhone and the average low-end smartphone. This low- end segment is important given we estimate it is a $135B market in 2013 that Apple is currently not participating in (60% of smartphones, or 540m units at a $250 ASP).

Munster predicts Apple will announce its low-cost handset in September, and estimates that a $199 price tag would generate sales of 37 million phones in the rest of 2013, 96 million in 2014 and 170 million in 2015. While an iPhone at that price would carry much lower profit margins for Apple, Munster believes that the opportunity is so significant given the size of the potential market that Apple will be willing to focus on gross profit through volume rather than margins.

While rumors of a lower-cost iPhone have been picking up steam in recent months, a price point as low as $199 would seem to be overly aggressive for the company given its refusal to sacrifice quality to achieve a low price. Tim Cook noted at last week's Goldman Sachs conference that "the only thing [Apple] will never do is make a crappy product", and it remains difficult to see how Apple could provide the iPhone experience at such pricing.

They're making the false assumption that Apple is looking to make money. They've shown time and time again that they don't care to make cheap products.

They've never sold a new laptop for under $899, they've never sold a new desktop for under $499, they've never sold a new tablet for under $299, so why would they enter the cheap phone market?

Yes, they might offer a phone cheaper than the iPhone 4 currently is... maybe they'll keep the iPhone 4 around and sell it for $299 - $399 (total cost of ownership), but I don't see them dropping to $199.

Keeping the iPhone 4 around really wouldn't be bad... They'll likely be keeping the 4S around and from a developers perspective, there's not much special you have to do to support the 4, unless you're making a very intensive game or simulation or something.

Can't they see that while they compete in a market selling cheap iPhones they will also hurt their margins and sales of their flagship iPhone? This is why I can't see Apple doing this. I think the fact that selling their previous generation iPhone as a "low cost" option has been working well is more than enough reason to dispute this rumor all together.

Now watch me eat my words in a year..

*Edit*
My above post is more for the subsidized market in the US while this article is for unsubsidized market pricing in all markets.

Still, a cheaper unsubsidized iPhone would cannibalize iPhone sales all together unless there was a main difference. I can't see that difference being iOS features or functionality. The difference would have to be quality of materials which goes against Apple's principles.

Remember what Steve said to Nike? Get rid of the crap. I hope Apple doesn't start adding "crap".

It boggles my mind that analysts (who were supposedly schooled) are so fixated on marketshare as if that's the only measure of success. They remind me of moths irresistibly drawn to a flame... They just can't help themselves.

Well seeing analysts thought the iPad Mini would be priced between $249-299 in order to compete against other low-cost tablets and Apple ended up going on top with $329 to sprinkle a little bit extra profit margin, I expect the same thing to happen here. If the average unsubsidized smartphone around the world costs around $199, then if/when Apple comes up with a low-cost iPhone, it'll probably start at $249 probably for the 8GB version with a $349 16 GB version. Existing iPhone tiers are $450/$549/$649/$749/$849 so with $249/$349 Apple has a consistent product stack.

*Edit*
My above post is more for the subsidized market in the US while this article is for unsubsidized market pricing in all markets.

Still, a cheaper unsubsidized iPhone would cannibalize iPhone sales all together unless there was a main difference. I can't see that difference being iOS features or functionality. The difference would have to be quality of materials which goes against Apple's principles.

Remember what Steve said to Nike? Get rid of the crap. I hope Apple doesn't start adding "crap".

I guess I see what you're saying, but I imagine they sell premium products to 1st world established markets and then sell a less expensive phone to emerging markets.

Companies have been doing this for a long time. We used to just not know about or care about it. I maintain this is probably a good idea.

It will never happen. I don't know why analysts are expecting an "iPhone International" or some other random named phone that would essentially be a low quality iPhone 4. That would kill Apple's marketing image faster than almost anything I can imagine, outside of them live streaming animal sacrifices to please the spirit of Jobs.

It will never happen. I don't know why analysts are expecting an "iPhone International" or some other random named phone that would essentially be a low quality iPhone 4. That would kill Apple's marketing image faster than almost anything I can imagine, outside of them live streaming animal sacrifices to please the spirit of Jobs.

You're assuming they would have to do the same things now, in 2013, that they did in 2011 to create a low-cost iPhone....not necessarily the case.

Apple has shown a liking to the "gate-way drug" concept. A cheaper iPhone could open up a HUGE portion of the world to Apple's eco-system. Other Apple products, the app store, iTunes.....

Apple won't create a cheap piece of crap for sure - but I believe its possible for them to create a nice $199 iPhone. Heck, the iPod touch is $299 and has a nice build.

I guess I see what you're saying, but I imagine they sell premium products to 1st world established markets and then sell a less expensive phone to emerging markets.

Companies have been doing this for a long time. We used to just not know about or care about it. I maintain this is probably a good idea.

True. If they had it restricted to emerging markets where iPhone sales are close to non-existent I imagine it could be a hit and add to revenue, marketshare, and entice people to use the ever-addictive iTunes and App Store.

Where does Apple stand in the prepaid market? I know a few services allow unlocked iPhones on the network but are their iPhones included with the prepaid service?

Make the "iWatch" or "wearable" a small, mostly "screenless" and all about making calls device…differentiating it from the iPhone, and therefore not diluting the handset market with a "cheap" phone. Perfect second accessory to those that already have an iPhone, and simpler interface draws in new tiers of customers.

The time to sacrifice some margin for market share has come for Apple. The iPad is the next big computing platform for Apple because it is a low-cost computer for schools and such. iPhone becomes a halo device for iPad if you can put it in more hands. Additionally, we all know that services and the cloud are going to drive the future. iCloud only works on an Apple device. That means you want somebody to have an iPhone so that they also want an iPad and a Mac. iCloud needs to become so good that people want to go "all Apple" in their purchases so that everything connects together and stays in sync. I'm not saying that Apple should give away a low-cost iPhone, but they need to make a good phone at a lower price that is still an iPhone.

I don't see this happening. With the overwhelming majority of the profits and the #1 platform for mobile developers, what is there to gain?

They have basically the best of both worlds. More marketshare doesn't give them much really because its only on the largely unprofitable low end where they have less marketshare which this supposed $199 low end iPhone is supposed to target.

Developers already target iOS over other platforms with more marketshare because its a more desirable target market... the users have more money, they browse the web and use apps more, and developers make more money.

Apple seems to be exactly where they want to be and that is making the best phones and the most money doing it. The only people who care about general "marketshare" are analysts and fanboys.